JSE Limited listed Aspen Pharmacare Holdings Limited (Apn), the ninth largest generic company in the world and Africa’s largest pharmaceutical manufacturer, has announced excellent results for the interim period ended 31 December 2012.
Group Performance
- Revenue from continuing operations increased by 20% to R9.0 billion.
- Operating profit from continuing operations rose by 24% to R2.5 billion.
- Normalised headline earnings, being headline earnings adjusted for restructuring costs, transaction costs and foreign exchange movements on transaction accounting, advanced by 24% to R1.7 billion.
- Normalised diluted headline earnings per share was 23% higher at 379 cents.
Stephen Saad, Aspen Group Chief Executive said, “The Group’s favourable results were achieved by a combination of organic growth, contributions from acquisitions and successful new product launches. There are initiatives underway to extend Aspen’s proud growth record in all business segments. ”
South African Business
The South African business maintained the favourable momentum from the second half of the prior year, raising revenue by 23% to R3.6 billion and improving operating profit before amortisation, adjusted for specific non-trading items (“EBITA”), by 14% to R960 million. Revenue in the Pharmaceutical division increased by 24%, buoyed by ongoing organic growth, positive performances from new product launches and a strong upswing in anti-retrovirals (“ARVs”) sold under the public sector tender. Higher priced raw materials due to the weakening Rand and a greater weighting towards low margin ARVs resulted in margins in the Pharmaceutical division tightening despite production efficiency gains. The Consumer division increased revenue by 17%, led by impressive advances from Infacare, Aspen’s leading infant milk formula brand. Consumer margins were also negatively affected by the higher costs of imports.
Capital projects are underway at each of the Group’s South African manufacturing sites to add capacity and advance technologies available as part of Aspen’s enduring aim to lower cost of goods. The Aspen Board of Directors has recently authorised a new project for the construction of two high containment suites, one for hormonals and one for oncolytics, on the Port Elizabeth site. The suites are for oral solid dose products requiring containment due to the risks associated with long-term exposure to these drugs during manufacture.
Asia Pacific Business
The Asia Pacific business maintained its record of continuous growth, lifting revenue by 18% to R3.4 billion and growing EBITA by 29% to R949 million. Revenue growth was achieved in Australia, the dominant contributor to this territory, despite mandatory price cuts imposed by the regulator. A key growth driver was new products secured through acquisitions. Revenue from Aspen’s products in Asia also continued to grow. Margins widened as the programme of cost of goods savings produced additional benefits. The strengthening of local currencies relative to the Rand enhanced results. The consolidation and rationalisation of Australia’s manufacturing facilities progressed further with the decision reached to close the Baulkham Hills site. Once complete, all Australian manufacture will be concentrated on the Dandenong site.
International Business
The International business increased revenue by 22% to R1.8 billion and expanded EBITA by 33% to R604 million. The Latin American region was the greatest contributor to the revenue advancement due to a combination of organic and acquisitive growth. In line with Aspen’s objective of extending its footprint in Latin America, a subsidiary was established in Argentina during the period. In addition to the revenue growth achieved in this territory, EBITA was also lifted by improved margins delivered by the global brands portfolio.
Sub-Saharan Africa business
Gross revenue from Sub-Saharan Africa was up by 19% at R1.0 billion as greater promotional activity yielded positive outcomes. An even better performance was inhibited by political unrest in both Nigeria and Kenya, two leading markets in the territory. EBITA however declined 10% to R122 million as margins were pressured by an increased investment in sales representatives and regulatory support, relative currency weakness in the territory and by a shift in sales mix.
Prospects
The South African pharmaceutical business has the most comprehensive product offering in the country and leads the industry in both the private and public sectors. Focus will remain on extensive sales representation and promotional support driving consistent organic growth supplemented by regular new introductions to the market from the prolific product pipeline. Aspen will implement the 5.8% Single Exit Price increase granted by the Department of Health during March 2013, which will provide some relief to the margin pressure created by the weakening of the Rand and high-administered inflation. Aspen received a reduced share of the public sector ARV tender awarded recently and which has commenced on a phased basis. However, in achieving the largest allocation of the once-a-day triple combination, Tenofovir/Emtricitabine/Efavirenz, Aspen has secured supply of the product most favoured by clinicians as the first choice ARV treatment. Infant milk formula products are set to continue as the most important contributor to the performance of the South African Consumer division in the second half.
The Asia Pacific business is expected to replace South Africa as the Group’s largest revenue generator by the end of the 2013 financial year as sales from the classic brands (a portfolio of 25 established pharmaceutical products purchased from Glaxosmithkline and distributed in Australia) add impetus to the second half performance. Aspen’s growing prominence in Australia and its unique offering spanning branded, generic and OTC medicines positions it well to outperform the market in this country. Demographic profile and regulator interventions limit growth prospects for the Australian market and Aspen is looking to build its influence in Asia to sustain the growth achievements of the Asia Pacific territory. Following the successful establishment of a subsidiary in the Philippines last year, Aspen will commence trade in Malaysia before the end of the financial year. Further countries in which Aspen can set up its own sales infrastructure in Asia are under consideration.
Growth of the global brands portfolio and improved profit margins from this product range have been important drivers of the increased profit contribution from the International business. The Group is continuing to vigorously explore opportunities to expand the global brands portfolio by adding value enhancing products. Prospects remain positive in the Latin American territories for both organic and acquisitive growth.
Greater coverage by sales representatives in Sub-Saharan Africa should support further revenue generation provided the volatile political situation in key areas does not constrain this activity. The decline in earnings in the first half should be reversed over the full year as measures to address margin losses take effect. A subsidiary has recently been established in Nigeria and will initially focus on Aspen’s OTC and consumer products.
Significant attention is being given to the assessment of investment opportunities, which will add to the Group’s value proposition. The Group’s favourable performance is expected to continue into the second half of this financial year.
Renewal of Cautionary Announcement Shareholders are referred to the cautionary announcement released by the Company on 4 February 2013 and are advised to continue exercising caution when dealing in the company’s securities.
